Christine Lagarde: "I Don't See the IMF As the Bad Cop"

For her exclusive interview with Alexandre Zalewski and me at France's Ministry of Finance, Christine Lagarde sported an ensemble in bright yellow -- the color Queen Elizabeth wore at April's Royal Wedding. The Queen promptly turned the color into a fashion trend.

Lagarde, for her part, is poised to become Queen of International Finance. Since Dominique Strauss-Kahn's resignation, the no-nonsense former lawyer -- who has also headed France's Ministries of Trade and Agriculture -- has overcome international doubts about appointing yet another French national as Managing Director of the International Monetary Fund. She's now the EU's official candidate. Developing countries have lobbied for one of their representatives to get the post, but have so far failed to unite behind one.

Assuming that you're elected Managing Director of the IMF, what can we expect from you in your new role?

The IMF has two specific tasks: oversight and crisis management. I want to focus on those two roles. They have to be constantly updated so that they're relevant and responsive to the needs of the members. The IMF belongs to its 187 member states. I want it to be relevant to all of them. Some of them -- in Africa, Latin America and Europe -- have particular needs, and they should continue to receive the kind of support they request. Receiving IMF assistance shouldn't be a stigma. But all countries are beneficiaries of the IMF's oversight mission, including its early-warning system, which was improved by the IMF's previous Managing Director. I don't see the IMF as the bad cop. I see it as an institution that delivers the best possible services to its members.

How do you view the current global economic situation?

There's an asymmetric post-crisis recovery. China, Brazil, India and some African countries have 5-9% growth rates. Industrialized countries like the US, Europe and Japan, on the other hand, have much slower growth rates and slower recovery. If I look at the global situation, industrialized countries are clearly focused on sovereign debt, but we shouldn't generalize so easily. Sweden, for example, is doing incredibly well. Their growth rate is amazing and the level of indebtedness is extremely reasonable, and yet it's part of the EU. If you look at other parts of the world, the major concern is not debt but inflation and the price of commodities, which is skyrocketing. In China food prices have risen around 10% in the past month alone. I was in Cairo last week, and there the price of wheat is a big concern there. One concern that most countries share is how to create jobs, especially for young people. We have to make sure that we can build the macroeconomic environment to create enough jobs to give young people the expectation that there is hope for them in the world.

Speaking of youth unemployment, there's lot of concern about exactly that in the PIGS countries (Portugal, Ireland, Greece, Spain). Can the IMF help them if they're not able to deal with such structural problems themselves?
The IMF has to provide them with financial and technical support to address those structural problems. Portugal, for example, has agreed to reform the labor market, as a key component of the program. It's same thing with Greece. It was a structural reform, and that's where the IMF can help.

Greeks are rioting because of the austerity package...
Under the current situation, Greece could not refinance itself. It had to seek help from the international community to provide them with the needed financial assistance to bridge the time needed for the structural reforms to bear fruit. The EU and the IMF responded. But the Greek have to help themselves first. They have to sort out their financial situation, reduce their deficits, rebuild their competitveness. There is no way around it.

You're the EU's candidate, and EU countries are large IMF borrowers. Isn't that a conflict of interest?
The moment I become elected, if I'm the one, I don't represent a country or a group of countries. I'm there for the entire institution and I have to dissociate myself from my home turf. The IMF belongs to nobody but its entire membership of 187 countries. Obviously, I'm familiar with the landscape, the people in charge and I took part in some of the discussions. But from that moment on, my interest is not my territory or my home. Incidentally, let's bear in mind that almost all regions of the world comprise countries that benefit from IMF precautionary or disbursing programs.

Developing countries say it's time the IMF Managing Director came from their ranks. What's your reaction?
I think anybody should be allowed to be a candidate. And I don't regard myself as the European or the French candidate. I'm a candidate. The process is open, transparent and it should be merit-based, as well as regardless of nationality. I shouldn't being blamed being European, nor should anyone be blamed because they're from an emerging country.

The EU plans a new law that would force companies to hire female executives. Do women make better leaders?
I have to be careful here, because I'm known to have complained about too much testosterone, particularly in trading rooms. But it goes back to a point that is critical to me about the IMF: diversity. If you only have one gender represented, it's a weakness. You strengthen an organization by making it more diverse, gender-wise, academically and geographically.

A couple of years ago, would the global financial landscape have benefited from more diversity?

Absolutely. Women bring a different set of values. People should be valued on their respective merits, but there shouldn't be any exclusion. In many instances, women are still not readily accepted at the table.

Should women stop complaining, or do they have a legitimate concern?
Women have a legitimate concern. Look at the salary scale, and the differences between men and women's status, yes, there is a big difference. I hope that those differences blur to the point were women can actually have the choice. I'm not suggesting that all women should have a professional career or consider it the ultimate achievement. What I would hope is that the workplace is sufficiently hospitable so that you can decide whether you want to have children, raise them until the age of six and then come back to work, and not suffer as a result of that.

The world is still in an economic downturn. Assuming you're elected, can you help prevent other economic collapse?
Yes. In fact, that's part of the IMF's job to identify where bubbles are forming. Of course, countries have to listen to the IMF, too. Before 2008 there were reports by the IMF warning about a collapse. That's why, in addition to skilled staff, the IMF needs a Managing Director who is politically astute and tell governments, "watch out, something is boiling here." The IMF shouldn't just be only the fireman. It should also be an alert system.

So the previous IMF leadership failed to be such an alert system?
It did observe problems, but it made mistakes, and it acknowledged making mistakes, which provides a sound basis for further improvement.

The reason you're about to assume leadership at the IMF is the DSK scandal. How has it changed the political culture in France?

It has made women stronger. It has given women the confidence to speak up and be respected.
Have you received any advice from your predecessor about how to run the IMF?
No.